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Apartment Bubble Inflating Fast

"It is underlying demographic demand that is finally starting to kick in," notes Patrick Newport of HIS Global insight, citing an annual US population increase of about 3 million and an annual household increase of 1.1-1.3 million (historically). So if demand is growing for single family housing, does that necessarily mean it is all being pulled from multi-family rentals? Maybe not.

"There is still a tremendous amount of demand for apartments," says Mitch Roschelle of PWC. "The supply side of the equation is a different story, there's clearly been a run-up in building permits and the projections of growth in supply continue to be strong, however, the question becomes is there too much risk of overbuilding? If you look back at the last several overbuilding cycles that we've had, whether it be the one after the S&L crisis or the one from the 90s or the one from this decade, we really haven't been a situation where we've overbuilt multifamily in the last 6-7 years, so we don't have an excess of supply, and we don't have an excess of financing to fund future growth in supply."

PWC, which put out its 2013 forecast Wednesday, does not see overbuilding risk. Despite the recovery in the single family housing market, there are still many Americans who cannot afford to buy a home and/or cannot qualify for today's mortgages due to impaired credit. The worst of the housing crash may be over, but the scars are not yet healed, both fiscal and emotional. The prime demographic for home buying, those in their 20s and early 30s, are still seeing homeownership is as risky. Either that, or they don't have the down payment or the credit scores to get in the game.

--Written by Diana Olick at CNBC
CNBC is a world leader in business news, providing real-time financial market coverage and business information.
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